4/4/2024

How Intel works: strengths and weaknesses

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Despite the successes of companies like Nvidia, not all chipmakers are in the black today. Even a giant like Intel saw its stock decline significantly within one trading session after reporting a loss.

Since its founding in 1968, Intel Corporation, based in Mountain View, California, has established itself as one of the world’s leading manufacturers of microprocessors and chipsets. The company, founded by Robert Noyce and Gordon Moore, has demonstrated phenomenal efficiency over the years, achieving significant results at minimal cost.

In this article, we will analyze both the factors behind Intel’s dominance in the semiconductor market and the company’s weaknesses in an increasingly competitive environment.

Preservation of own production

Unlike most other competitors, Intel manufactures its products in-house. The company maintains control over this process, even making chips for other companies whose scale prevents them from being considered serious competitors. Despite assembling chipsets in China, Intel uses its own factories for this.

At the end of 2022, Intel had 131,900 employees. Almost half of the company’s chipsets and microprocessors are manufactured at its own facilities in the United States, in the suburbs of Phoenix, Albuquerque and Portland. Outside of China, much of the remaining Intel products are developed in Israel.

Clear development strategy

Intel co-founder Gordon Moore is known for his famous observation known as Moore’s Law. Formulated in 1965, it states that the number of transistors placed on an integrated circuit chip doubles every two years. Intel not only followed this principle, but also integrated it into its development strategy.

In 2020, the company announced that it had managed to double its total production capacity for 14nm and 10nm technology in just a few years. This allowed Intel to expand its 10nm product line and release a new generation of processors for mobile PCs.

Competition in the market

The practice of making chips for other companies, even potential competitors, is not something exclusive to Intel. In 2007, Apple Inc. began using Intel processors in its Mac computers, abandoning PowerPC, developed with the participation of Apple itself.

However, this long-term collaboration ended in 2020 when Apple announced a transition to its own M1 chips as part of its “Apple Silicon” strategy aimed at controlling the core technologies of its products.

The loss of such a large and profitable client was a serious blow for Intel. In its 2020 annual report, the company identified the shift from customers like Apple to designing their own semiconductors as one of its key challenges going forward.

Intel criticism

In December 2020, Intel’s reputation for innovation was questioned by hedge fund Third Point LLC. Third Point criticized Intel management for losing market share to rivals – in particular by losing customers such as Apple, Microsoft and Amazon, which switched to in-house semiconductor design and manufacturing in Asia.

In addition, Intel was reproached for its inability to retain leading specialists and managers who were gradually leaving the company.

Third Point CEO Daniel Loeb has called on Intel to consider alternative strategies, such as divesting from failed acquisitions and rethinking whether it makes sense to remain a maker of integrated devices. Under pressure from criticism, Intel’s board of directors announced a change in CEO: in February 2021, Bob Swan was replaced by Pat Gelsinger, who previously headed VMware.

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